#110 Jim Collins: Relationships vs. Transactions

Renowned researcher and author Jim Collins makes his second appearance on The Knowledge Project, this time to share a wealth of life lessons learned from his mentor and collaborator, Bill Lazier. Jim recently released BE 2.0 (Beyond Entrepreneurship 2.0), an ambitious upgrade of his first book Beyond Entrepreneurship, co-authored with Lazier and focused on effective leadership style. Shane discusses all new topics with Jim in their follow-up conversation, including what it means to be a mentor and a father, why we should trust by default, why we confuse living a long life with a great life, and the difference between being afraid of risk and being afraid of ambiguity. -- Want even more? Members get early access, hand-edited transcripts, member-only episodes, and so much more. Learn more here: https://fs.blog/membership/ Every Sunday our Brain Food newsletter shares timeless insights and ideas that you can use at work and home. Add it to your inbox: https://fs.blog/newsletter/ Follow Shane on Twitter at: https://twitter.com/ShaneAParrish Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  If I stand back and I think about what are my absolute most primary values, they are curiosity and relationships. Bill's basic view of the world was, number one, life is short. You never know what's going to go away. And in the end, what is that up to? What is meaningful? And Bill believed that people break into two buckets. There are those who kind of come at life as a series of transactions. And there are people who come at life as building relationships. Bill believed that the only way to have a great life, you can have a successful life doing transactions, but the only way to have a really great life is on the relationship side.

• 0:55Shane Parrish?

  Welcome to The Knowledge Project. I'm your host, Shane Parrish. This podcast sharpens your mind by helping you master the best what other people have already figured out. If you're listening to this, you're not currently a supporting member. If you'd like special member-only episodes, access before anybody else, transcripts, searchable transcripts across all the shows, and other member-only content, you can join at fs.blog/podcast. Check out the show notes for a link. Today, I'm speaking with Jim Collins, author, student, teacher, and researcher of what makes great companies tick. His books include Good to Great, Built to Last, How to the Mighty Fall, Great by Choice, and most recently, B 2.0, Beyond Entrepreneurship 2.0,

• 1:39Shane Parrish?

  the ambitious upgrade of his very first book. Jim was on the show before, episode 67 to be exact, and it was one of the most downloaded and talked-about episodes we've ever had. Today, we cover all new ground, including: what it means to be a mentor and a father, why we should trust by default, sustainable relationships, why we confuse living a long life with living a great life, why some people suffer from indecision and what to do about it, risk aversion versus ambiguity aversion, pattern recognition, and so much more. Grab a coffee, it's time to listen and learn.

• 2:21Shane Parrish?

  I think we're going to start with Bill Azier and the role of great mentors that sort of changed your life. You said he was the closest thing to a father for you. So I want to start there. What does it mean to be a father? Not in the biological sense, anyone can do that, but the essence of what it means to be a father.

• 2:36Speaker 00

  So let's just start, let me, I guess, answer that question a little bit by talking about how I saw Bill as a father, a specific case, and to expand that out to what father is about. In our, in our last conversation, I shared the story of going down to New Mexico to try to connect with my real father, my biological father, when he was living in the adobe hut with the dirt floor. And actually, that was the first time I think I've publicly shared that story. And so that was kind of like the recognition there was no father. I was very fortunate to come across Bill, ending up in his class the first time that he taught at Stanford. And no one knew who he was. I didn't know who he was. He had

• 3:20Speaker 00

  had a successful entrepreneurial career and was taking this step of, of kind of a renewed path to invest in young people. And, and then shift from building companies to building young people, I think is what was really happening. And Bill took this interest in me. I don't really know why he did. It's, I mean, I truly can't give you an answer for that. I don't, I don't think I was a particular standout on it, you know, in, in certain kinds of dimensions. But I think that it starts there is a genuine interest, interested without any agenda. There was no sense of what, that Bill felt, you know, is it something that he wanted me to like, start a company so he could invest in it?

• 4:01Speaker 00

  Or, you know, or is going to help him with research? Or he had no idea that eventually we'd write a book together or any of that. Bill just, in this tremendous sense of generosity.

• 4:15Speaker 00

  Took an interest in me and he would start inviting Joanna and me over to his house. And he would just begin asking questions and he was, he just, he just wanted the best for me, whatever that would turn out to be. But he also had this kind of faith and belief in, in that if I found a way to deploy my energies, I could be effective and useful. Uh, he also had this real sense of guidance for me. Bill would talk to me a lot about values, commitments and about relationships and about, what are you going to serve and, and these sorts of things. And until I really started having conversations with someone like Bill and Bill in particular, in great depth in

• 4:56Speaker 00

  my twenties, uh, I had never had a father figure who invested in trying to shape my character. I, I really was impoverished on that. And then Bill stepped in and played that role of helping to shape not what I did career wise, but who I was as a person. And he would guide, like, you know, he would, he would help me try to see, this image I always had was I was a super high energy propulsion machine, but I kind of didn't have a guidance mechanism. I could just go crash into a cliff or something. And, and Bill was helping me build that guidance mechanism that was both kind of in, in direction and in quality. He would invest that way. So I think it has to do with being

• 5:41Speaker 00

  genuinely interested without asking for anything in return and shaping who you are, your character. At that point in my life, I was on a journey to create my own father. I mean, that's really, you know, we mentioned that last time. I, I really was trying to do that. It's like, I didn't get one, so I'll make one. And Bill was one of the central people in that. I remember this, um, coming up with this thing called the personal board of directors. And, uh, I was back in the early eighties and, and I made Bill my honorary chairman of my personal board of directors. And when I chose members for my personal board of directors, they were not chosen for their success. Uh, they were chosen for their values and for their character.

• 6:25Shane Parrish?

  Can you dive into that a little more? I mean, what I'm thinking about here is that we're all born with parents. We didn't choose them. Some of them are exceptional, some of them are average, and some of them are terrible. And that's not to place anybody in any of those buckets, but this is what you grow up in, and you get this environment, and you get these habits. You assume these habits from your parents, and that's the patterns that you learn as children. And then, at some point, you take over your life, and you get to choose your habits and patterns. Whether you recognize it or not, you can take control. You can pick your own personal board of directors. You can pick your mentors. And we can choose to have the best mentors from history. What's the approach to pick the right ones?

• 7:05Speaker 00

  First, in my own case, I had to start choosing early. I think my initial choosing was to get away, to not have to depend on something like an undependable father. I mean, no one in my family gave me guidance about where or what I should do, or how I should think about things. So I think this question of sort of self-direction and self-choice and self-molding, for me, started, gosh, I was 13 or something, probably, when it was really conscious that it really began. And there were some pivotal moments in that for me, where I just like, I'm just gonna do this, this is what I'm gonna do. But then, when I entered my twenties, when I think about kind of choosing mentors and

• 7:47Speaker 00

  creating a father, I did three things. The first was, I just made a simple goal. I'm gonna read 100 biographies. And I figured that by reading 100 biographies, I would get 100 lives. And those lives would teach me something. The beauty of biographies is you get an entire arc of people's lives, right? And so you don't just see them at moments or incidents. And I sat down, and one of the ones that shaped me a lot was Churchill's memoirs of the Second World War, 4,996 pages, six volumes.

• 8:26Speaker 00

  It completely shaped the way that I think about how you guide through tumultuous, horrendous times. And I tried to take the best of Winston Churchill as a guide. And then that sort of led to the second part of the personal board of directors. And I remember very vividly, I was driving down Alma Street in Palo Alto. And I was listening to an audio book called Plain Speaking. And Plain Speaking was basically transcripts and consolidations of interviews that a guy named, I think Merle Miller, had done with Harry Truman. And Truman had this one line in there, which was, "The only thing I know for certain is if you don't know the difference between right and wrong, by the time you're 30, you never will."

• 9:11Speaker 00

  And I, like, literally made a right turn, pulled off the side of the road, and sat there and thought to myself, I was in, you know, somewhere in my early to mid twenties, I got, like, five years to figure this out. You know? I mean, it was a really critical moment, it's like, how am I gonna do that? Right? Because I really didn't want to get, I really wanted that. And so, that's when this idea of, I'm gonna create a personal board of directors. And I'm gonna put people on that board who I admire for their character, right? They're the sorts of people I wouldn't want to let down. And so, I drew a little diagram of a, like, a board table, and I put seven seats around it.

• 9:53Speaker 00

  And of course, Joanne had one, Bill had one, Bill was my first sort of non-Joanne choice, and then I, then I filled out the rest. I put that, that piece of paper above my desk, and whenever I'd be in situations, I'd look up to that piece of paper, and there'd be those seven seats. I mean, it was literally, like, their names were there, and, and it was like this guidance mechanism, and I didn't look to it for, you know, how to be successful. That wasn't what the personal board was about. It was this, like, moral compass, and this sense of what's a richer values-based life based on these people. So then, that was the, the second part. So biographies, then the personal board of directors.

• 10:36Speaker 00

  And then the third was really, really growing from mentor moments. If I had a wonderful mentor moment, it might have only been a day, or an hour, or it might be like with Bill, where it was day after day after day after day, for years. But those mentor moments, they were like sapphires, they're just pure drops of gold. And I wanted to have those be, like, these seeds, these kernels, that would, would affect me for the rest of my life. And, and, and I have sought mentors, it's evolved, and, and I, and so I had the personal board of directors, and then as I've gotten older...

• 11:16Speaker 00

  Most of my personal board members are now deceased, including Bill. And so I started thinking, now that I'm in my 60s, how do I begin to also have that same mechanism? And I've evolved it. It's no longer personal board directors. Now that I'm at a different stage of life, I have my personal band of brothers. Some of them are women, but it's sort of this band of brothers idea. And there's these people in my life that, again, I wouldn't want to let down. Some of them are younger than me, quite a bit younger. Some of them are about my age. And when I text them, it's Brother Tom, Brother Kyle. My personal band of brothers, the people who would hold me to account,

• 12:00Speaker 00

  the people I would not want to let down.

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• 13:02Shane Parrish?

  I think that's a powerful approach. I want to dive into some of those mentor moments, specifically with Bill, and some of the lessons that he helped instill in you. One was relationships, not transactions.

• 13:15Speaker 00

  So Bill, and we write about this in this Beyond Entrepreneurship 2.0, which co-authored with Bill. And a big part of the reason why we're talking about Bill is I re-released this book with a chapter about Bill to really honor Bill and extend his legacy. And he died in 2004, and I knew I wanted to write something about him. And the profound impact he had on me. If I stand back and I think about what are my absolute most primary values? And particularly ones that I got from Bill. They are curiosity and relationships. And the curiosity, I think, has kind of been with me all the way along. But the relationships, when I got from Bill. Bill's basic view of the world was, number one, life is short.

• 14:00Speaker 00

  You never know what's going to go away. And in the end, what is that up to? What is meaningful? And Bill believed that people break into two buckets. There are those who kind of come at life as a series of transactions. And there are people who come at life as building relationships. Bill believed that the only way to have a great life, you can have a successful life doing transactions, but the only way to have a really great life is on the relationship side. And so Bill just pounded in me, instilled in me, modeled for me. In the end, it is really deep relationships and doing things you love with people you love, and those connections.

• 14:41Speaker 00

  And so we got into this conversation, though, about relationships one day. And I asked Bill, so, okay, but so what makes for a great relationship? And Bill said, oh, a really great relationship is one where if you ask each person independently who benefits more from the relationship, they would each say, well, I do. And I said, well, isn't that a little bit of a selfish way to look at it? And he said, well, no, let's think about this for a minute, Jim. Let me ask you, Jim, who do you think benefits more from our relationship? I said, well, clearly I do. I mean, with everything you've done for me. And he said, well, isn't that just great? Because I would answer that I do. And he said, see, the reason both people can answer that way

• 15:26Speaker 00

  is because both people are putting into the relationship, not for what they're going to get from it, but for what they can give to it. And because both people are doing that.

• 15:39Speaker 00

  Both people would feel that they are the ones who are the ultimate beneficiary because of how much the other person gives. Everything we do here at the Good to Great Project is relationship oriented. I mean, there's not a single day that goes by that we don't think about what is the relationship element of this decision of how we handle something, of whether we say, how we say yes or no. Everything goes back to relationships.

• 16:04Shane Parrish?

  One of the other lessons you learned from Bill was the trust wager. Talk to me about that.

• 16:10Speaker 00

  Bill had this really interesting stance on trust that ultimately affected me. And so, let's make this both human and intellectual. When I left Stanford to launch it on my own, and in our last conversation, I described launching it on my own and the fear of that and the commitment and so forth. And when I sort of left, the relatively cloistered world of a place like Stanford, you kind of hit a broader world. And certain assumptions about how trustworthy people are might get dashed by events. And I don't want to call people out on this, but just suffice it to say that, to my great shock, I discovered that some people actually genuinely weren't trustworthy.

• 16:54Speaker 00

  I was, I'm just naive in some level, right? But when I've had people like Bill Lazier in my life, or I've met people like Jim Stockdale, or Peter Drucker, people that just, they're just of such a character caliber that I was in a very rare group of folks. And so, I asked Bill, have you ever had your trust abused? He said, oh yeah, of course. I've had my trust abused. It's just part of life. But then he gave me this, it was one of this great mentor moment. He said, this is, Jim, this is one of, now that you're starting to have this experience and really experience it, you need to decide what is your opening bid? When you are establishing a relationship with someone, when you're interacting with

• 17:38Speaker 00

  the world, is your opening bid to assume trust? To assume that someone is trustworthy? And to grant them the full benefits of that? That's your opening bid. And that trust can be lost, but the bid is trust. Or is your opening bid to not trust? But the trust can be earned. So many aspects of your life will be affected by which fork on that you take. That's a stance on life. And I said, "Well, it seems to me, Bill, you've chosen the trust bid as the opening bid." And he said, "Yes, I have." I said, "But Bill, brutal facts.

• 18:22Speaker 00

  Not everyone is trustworthy." And the brutal fact is, some people abuse that trust. So have people abused your trust? And he said, "Of course they have." And he went on and he described a situation of somebody who was quite close to him, who had abused his trust and it had cost him enough that he said, "It hurt." Not just emotionally, but financially as well. And then there's this little kind of cul-de-sac on the whole thing that Bill has, which is the notion of you don't leave yourself exposed to a catastrophe in such a way that if you trust your, let's say, your CFO and you never look at the books and then you discover one day that you had a problem and your company is bankrupt,

• 19:06Speaker 00

  you always pay attention to the cash flow, you always watch the numbers, you always keep an eye on things. It's not like you become disconnected from reality. But he said, "But I never left myself open to catastrophe." Beyond that, yeah, that one hurt. I said, "Well, did it change your approach to trusting people?" He said, "No, it's just part of the cost of living." And then he went on and he described it as upside and downside. And this is what gets into the, it's just simply hard-headed. This was a hard-headed view. He said, "I've come to the conclusion, when I think across the iterative relationships and interactions and aspects of life, that there is far more upside in an opening bid of trust

• 19:49Speaker 00

  and there is far more downside in an opening bid of mistrust. It all goes to the question of people. If you really basically want to have your life, whether there be people in your company, whether they be people in your life, whether they be your friends, whether they be people you rock climb with, whatever it is."

• 20:10Speaker 00

  The very, very best people will respond to the bid of trust. The best people will be attracted to that. And you want the best people to be attracted. And the second is, he said, have you ever considered the possibility, Jim, that your opening bid affects how people behave? If you trust people, you're more likely that they will act in a trustworthy way. So it's a double win. It's the best people and they'll behave in a trustworthy way. The flip side is, if you have an opening bid of mistrust, the best people will not be attracted to that. If you have this opening sense of you have to earn my trust. Now, you may have to earn my trust how good you are at something, right?

• 20:54Speaker 00

  Or earn my respect for your performance, or that sort of thing. But if I basically like, I don't trust you, you have to earn it? Well, some of the best people are going to be like, I don't need to put up with that. I'll go do something else. And for Bill, it was always about, again, people and relationships, right? That's where the trust comes from. And he just came at it as a very hard-headed and warm-hearted approach to the world. And that's why I think there were so many people whose lives were affected by Bill Azier. He trusted them and he responded in very trustworthy ways in the world. The other thing, though, that on an intellectual front on this is I, as I think you know, I'm a huge fan of this thing called The Great Courses series,

• 21:38Speaker 00

  where you get college-level courses, 60 lectures, 40 lectures, whatever. And I've been doing them for years and years. There's one called Games People Play, and it's a course on game theory. And of course, I know you know game theory well. If I remember it right, the essence of it was that the best strategy is an opening bid of cooperation. Now, the game can unfold from there, right? But that is a good place to start. So I was very, sort of like, Bill had this sense of game theory that was in his approach to relationships and humanity. I don't know if he ever took a course on game theory.

• 22:12Shane Parrish?

  I think that's a really... Interesting way to approach it and I definitely agree with with that personally. And my friend Toby has this concept that I think might help people. It's very visual. It's called the trust battery. And you can do things that increase your trust or decrease your trust. But if you start that trust battery at, say, the 75th percentile, then you know, you're starting from a different place than if it's the fifth, you know, you're 5%, your trust battery is full. And it's been my experience that the benefits of reciprocal trust and the speed and not living with your guard up all the time is more than worth letting yourself occasionally get screwed. Another friend of mine had this really good concept about when to forgive and when to sort of like,

• 22:57Shane Parrish?

  and he said, as long as it's not malicious, just always forgive.

• 23:00Speaker 00

  One of the things that Bill always emphasized was that sometimes you don't know the whole story. He said, sometimes it may not be ill-intent. It could just simply be a misunderstanding or it could be just incompetence. Somebody might not actually be untrustworthy. They might just be incompetent or they made a mistake. Right. And so be careful. There's this, this moment, I call it seeing the hat. It's a weird thing, but driving down a road in Boulder and imagine a car all of a sudden veers into your lane from the lane next to you. You're both going in the same direction and you're like, oh, you know, idiotic driver or whatever.

• 23:41Speaker 00

  And then you notice that what had happened was when you went on past further is somebody's hat had blown off into the middle of the road and they were going to maybe step out and grab it. And but you couldn't see that. I think Joanne had this experience and you sort of think about it as like, well, wait a minute. You know, maybe you don't see the whole situation. You're jumping to a conclusion about why somebody is doing something when actually, if you can see the hat, forgiveness. What do you think it means to forgive? And do you find it harder to forgive yourself or to forgive others?

• 24:11Shane Parrish?

  Oh, definitely harder to forgive me. I think, you know, forgiveness just means letting it go. Right. And if you don't assume malicious intent on people, it's a lot easier to let it go. And we create these stories in our head about how people are, you know. Doing things to get us at work and you know, it's just, nobody really cares. You know, nobody's walking around trying to hurt you and maybe there is the occasional person, but it's not worth living life like that. And I think that when people in your life that are close to you, that you trust and you're vulnerable with do let you down in some way, then you know, the default should be to forgive them unless it's intentionally trying to hurt you and it's malicious. I'm probably the same as most of my listeners.

• 24:54Shane Parrish?

  I mean, I have exceptionally high standards of myself. I can't go listen to our past conversation because you know, like you, I'm like, oh my God, I could have worded that so much better. I could have said that more succinctly or I'm just always sort of like the inner critic in me is out of control in some ways. And I think that, you know, I find it really hard to forgive myself when I have lapses in judgment and we all do, we're all human. I mean, that's part of what it means to be human. And I think that we need to understand that and perspective helps us see that not only do we do that on occasion and we, we hope that other people would forgive us because we're not maliciously trying to get them, but other people, they're in the same boat. I mean, we're especially right now, we're all just trying to do the best we can. Nobody's at their best.

• 25:39Shane Parrish?

  The tolerance for, you know, what other people are going through just has to be higher and you have to put yourself in other people's shoes. You can realize that.

• 25:46Speaker 00

  The reason I ask about forgiveness is that one of the hardest things for me, as we talked about before, my, my dad died when I was 23 and when I went to Santa Fe and left that time, the Albuquerque, rather, visit where I realized there is no dad here. It's like that scene in Apocalypse Now, you know, there ain't no CO here, there's no dad here. And I carried a lot of anger and resentment and judgment about that. And then because my father died, I never had a chance to like reconcile. I had to learn how to forgive somebody who's no longer here and to let that go. The act of forgiveness is something I had to go through, even though my father is no longer here. And that was enormously liberating, right?

• 26:31Speaker 00

  I do not need to be judging somebody and be fueled by that. And I like your idea of the word letting go. It's letting, it's like letting that go. I don't need that. I can let that disappear.

• 26:46Shane Parrish?

  One of the things that I got out of reading the updated version of this was how we confuse living a long life with living a great life. You want to talk to me about that?

• 26:55Speaker 00

  So, long life and short life. This is another great lesson from Bill. And in the book, I wrote it as, put the butter on your waffles. But, uh, cause it really captures a crystalline moment. And he'll always seem to find a way to be smiling, which isn't necessarily my, my approach to the world. And I would often take things very seriously and very intensely. And so we were writing the original version of Beyond Entrepreneurship together. And on that original version, it was the very first book I ever wrote, and I was struggling to write, working on the writing part of it. And I would basically get to the end of the day, and I'd throw a bunch of pages in the wastebasket. I'm just

• 27:37Speaker 00

  like, God, I'm totally inadequate at this. And this is so hard. And of course, what you realize, anybody who writes, tries to write well, even if over the course of decades, you become a better writer, is the only reason writing becomes easy to read is because it's hard to write. And writing is just hard. I think of writing as, it's like running. If you're going to run your best, it's always gonna hurt. And so if you can run a five-minute mile, and then you get it down to 4:30, well, if you run a 4:30, and that's your best time, it's gonna hurt as bad as when you used to run the five-minute mile, and it was your best time. You're just faster. But it's gonna hurt. And writing is kind of like

• 28:21Speaker 00

  that. It's like, you know, it never gets easier. You only get better. And so I'm struggling, and I'm throwing things away, and I'm just really miserable, as opposed to just kind of like, this is just what writing is. And I go to Bill, and I, and I sort of whine about my suffering. And, and I expected Bill to give me a lecture on, you know, this is like, you know, this is the time to really grit through, and, you know, it's really gonna, it's really gonna hurt, but this is just something you have to endure. And, you know, it's kind of like, you gotta keep going. And, you know, that sort of like, the hard edged thing. And instead, what I got was this, this response where he just said, oh, well, okay, well, if this isn't fun, we should stop doing it. Say what?

• 29:04Speaker 00

  What do you mean? We're writing a book. Nowhere in the contract does it say, "Have fun."

• 29:11Speaker 00

  What are you talking about? So he says, "No, seriously." He says, "If this just isn't fun, if we can't find a way to make it fun, we should just not do it." It was so perfectly built because he just, he so deeply believed that if you can't find a way to make something fun and enjoyable, you'd sort of miss the point because along the way, there just aren't that many days and years in life anyways. And then, the day after we turned in the manuscript for the original edition of Beyond Entrepreneurship, Bill had a quintuple bypass surgery. He had a heart attack. And a few months after that, we were having our Saturday morning waffle fest. We would go to Peninsula Creamery in Palo Alto, and we would meet there on Saturday morning,

• 29:56Speaker 00

  and we would have waffles. We'd just talk about whatever. It was just Bill continuing to invest in shape and care. He puts butter and syrup on his waffle, like a big piece of butter. And then he puts the warm syrup on it. It all kind of mixes together. I mean, it's really great, right? But I look at it kind of in horror, and I go, "Bill, Bill, you have quintuple bypass. What are you doing?" And he just continues to put the butter on his waffles and enjoy his waffle and has a smile. And he says to me, "You know, Jim, when I was being wheeled into the operating room, I think I had a smile on my face because I realized right at that moment, I'd had a really great life.

• 30:40Speaker 00

  And if this happened to be like the end, and I don't come out of this, Dorothy and I have had a great run. Everything from here is going to be gravy on top of that because I really had this sense of this complete sense of common acceptance, like, if this is it, man, it was a great run. I've had a great life." He said, "To know that, to really know that when you're being wheeled in and you're going to have the quintuple bypass, then that was my feeling. I wasn't afraid. I was just grateful for my life." That's the moment I knew. I'd really had a great life. And so, I'm putting the butter on my waffles. And what Bill believed was, one, just this notion

• 31:24Speaker 00

  that time just goes by really, really fast.

• 31:29Speaker 00

  And it goes faster and faster. Now someday, I'd love to hear on your show, a psychologist or somebody who can explain to me why it's the same 24 hours, but they're always faster. And Bill and I, I put this little story in the, in the chapter. I said to Bill, one day, I said, "Bill, I noticed the time's going by faster." And he said, "Well, what do you mean?" I said, "Well, I just noticed that, you know, garbage days, when I have to put the garbage out, seem to be coming quicker and quicker." I was like, "Oh, my goodness, it's garbage day again." I know it's the same seven days, but man, it sure seems like a faster seven days than when I was young. And he said, "Ah, well, why do you get to my age? And Christmases start coming around as fast as garbage days." But, but that notion, he said, "You know, time accelerates."

• 32:14Speaker 00

  And so actually, I don't know what the psychology of it is. I have a weird little theory on it, but, but nonetheless, this notion that, you know, that the days seem, they're the same 24 hours, but they go by faster. And it's the same month, and it goes by faster. And the same year, it goes by faster. Click, click, click, click, click. And he just said, he said, "What that really teaches me is, it's going to be over in an instant. I don't care if you get 100 years, or 110 years, or 70 years, it's over in an instant. And I don't care how many years you get, it is short, and it is gone in the blink of an eye." Given that reality, Bill said, "I think in terms of a great life." It's the integral, right? Summation of all the moments of your life, integrated from birth to death, experienced TDT.

• 32:58Speaker 00

  It's the summation of those moments. And Bill was like, "However many you get, it's the quality of them." And that, he lived with to the end. And then he woke up from a nap, December of 2004, and he was walking across to the bathroom, and he fell dead from congestive heart failure. And Dorothy said he had a smile on his face. That was it. And I, I lost Bill, as did hundreds of other people. But he had absolutely a great life, and his impact on all those people was so immense. His lives, he changed, not just mine, but hundreds and hundreds of other people's lives that he changed.

• 33:45Speaker 00

  Creates that he did more through those people with his life than almost anyone I've ever met.

• 33:51Shane Parrish?

  And he's still touching people and changing lives. I want to switch gears a little bit here and talk about decision making, which is something we didn't really dive into last time we spoke, which I was really surprised when I searched our transcript just lightly for decision making. There was no queries. I was like, oh my God, how could I have Jim Collins on the line for a few hours and not talk about decision making? Well, why do so many executives suffer from indecision, but leaders who build great companies don't seem to? How do we prevent analysis paralysis from sort of preventing us from making a decision?

• 34:27Speaker 00

  So we know quite a bit about this from our research. And just to review for, for everyone, maybe if you haven't heard the previous podcast, our, our research method is we study the history, we do match pair. We find pairs of companies that were in the same spot, same time, same resources, same potential that then had different trajectories. And then we study them in slices of history over time to try to really understand what separated one from another, particularly during the era when one was great and the other was not. The key to that is historical, right? You try to go back in time. You don't, you don't read just later accounts of why, you know, Intel decided to do the 1103 memory chip.

• 35:10Speaker 00

  You have to try to go back and sort of see what did the world look like to the people at Intel when they were making that decision, right? So that you can then sort of follow through this iterative, it's like an iterated movie, right? Watching through step by step, okay, let's freeze frame here. Here they are in 1972. Here's the context, here's the environment. And then you look over at the comparison company and you say, what were they doing? They were looking at the same context, same environment. How did they make the, the decision different, et cetera? And then you, you replicate that and you picture it that, that if you, if you think about our research and something that Morton Hanson, who one of my great colleagues taught me is the power of breaking things into events. What we have is okay, it could have say 11 pairs of companies. Well, you don't actually only have 11 things to look at or 11 pairs to look at if you then

• 35:55Speaker 00

  disaggregate them. Across time, right? And you take their entire history. Well, now you can do something. Now you can have hundreds or thousands of decision events. Right? So now you've got buckets where you've got much larger numbers to work with. Let's look at all the decision events over time. And look at how they turned out, how they made them, to the extent that we can see that. How was it different than the comparison company? And you can begin to do things. So that notion of event analysis through a historical match pair method is very much how we come at our work. And Morton's ability to be able to say, which we use in Great by Choice a lot, which is how to break things into these discrete events

• 36:37Speaker 00

  that you can look at, you know, many, many incidents for doing really good analysis. And one of the things we looked at in our research over time is decisions. Big decisions, small decisions, processes of decisions, and so forth. Let me share a story. It's actually one that we used in Great by Choice about Andy Grove. So Andy Grove gets this prostate cancer diagnosis. And I don't remember all the details of it. But at the time, as I understand it, there was, you know, some degree of ambiguity. And maybe still today, I'm not an expert in prostate cancer or prostate cancer treatments. But there were all these different things.

• 37:19Speaker 00

  I mean, there was the implant seeds and surgeries and radiation and all these different things that you could do. And so you talk about, okay, now we've got a decision to make. What am I going to do? I have to decide what I'm going to do about this diagnosis. And you're Andy Grove, right? You're probably one of the best corporate decision makers in history. One approach would be, I'm just going to follow what my doctors say, or I'm going to follow the standard of care. Well, what he did was he got good advice from different doctors that are... But then he became, like, he really analyzed. He became, he's like, he described it like his second PhD. He really analyzed, this is a significant life-altering decision.

• 38:03Speaker 00

  So he's not just gonna be like, I just need to decide, you know, and if I make a mistake, I'll self-correct. Well, look, if you do certain kinds of surgery, you can't self-correct. But if you just sort of wait forever, well, then maybe the cancer will get you. Right? So you've got this tension between the two. So he, he does his, his, you know, sort of self-directed PhD in this stuff. And eventually chooses a course, I forget what the exact course is, is in Great by Choice. We wrote about it a little bit. But in there is something that really illustrates. Cause once he made his decision, it was a very clear and unambiguous decision of what he did. Morton and I observed was that it's not a choice between like analysis and bold, fast decision-making. It's about using really good empirical evidence and really good analysis.

• 38:48Speaker 00

  As the basis for clear and decisive decision. And that's what he did. Notice there's something else, though. There's a really critical aspect of decision-making. And so Morton and I got very, very curious about something, which is we got curious. We were studying companies that went from startup to 10 times better than their industries for the, for the book Great by Choice. In the most turbulent industries we could find. So that's why we're looking semiconductors and, you know, software and biotechnology in the early days, et cetera. And one of the questions that we really wanted to understand was speed and pace of decisions. What would the evidence say is the correlation between speed of decision-making and quality of outcome?

• 39:32Speaker 00

  And what we found was that the 10x leaders had a much wider range of ability between slow, medium, and fast. And sometimes they made really big decisions quickly. And sometimes they made really big decisions slowly. And there wasn't really seemed to be a pattern. And often the comparison companies would often act very quickly, this sense of like, we gotta do something, we gotta move, we've got, right? What Morton and I observed was this, is that the first question in decision-making is how much time before our risks change? So were Andy Grove's cancer situation, as he understood it, going to change in a matter of days?

• 40:17Speaker 00

  His risk profile was going to be the same a week or even six months later. He had, he had, he didn't have years. But he had months. And so he used the time he had before his risks would likely change to be able to make a better decision. I remember when the fires broke out here in 2009, and we got a call from a friend of ours who was in the mountains, it's just like, we gotta get out of here now, it's coming over the hill. So there are some situations where it's literally minutes, or maybe days, and the risks are gonna change, right? Or it could be something where it's, it could be years, and, and your risks aren't gonna change, either the risk of missing an opportunity, or the risk of, of getting it wrong.

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• 41:58Speaker 00

  My friend, Giorgio Paulo Lehman, grew up in Latin America, and, and was very successful in the tumult of, of Latin America, said something to me, he said, you know, people have such a need to resolve ambiguity and uncertainty, that they often act quicker than they need to because it's dealing with their own need to make the uncertainty go away. And what we learned in building companies in Latin America is the uncertainty never goes away. So often, we learn to like, if we can let events unfold without our risk changing, we will let them unfold.

• 42:38Speaker 00

  But when we need to act, we will act. What really Morton and I found in our research is the question is not fast decision or slow decision, you know, as sort of proxies for decisive or not. It's how much time before your risk changes and then make your decision within that timeframe. Another big thing we learned is near as I can tell, there is no correlation between consensus decisions and intelligent decisions. In history, of corporate history, most great decisions are taken where there's still substantial disagreement still in the air and they are taken without a need for consensus. The culture is one of disagreement, dialogue, debate, argument, pounding on tables, whatever,

• 43:23Speaker 00

  leading to a point of clarity, then in a corporate setting, followed by executive decision, followed by unified commitment behind it. That's the pattern that tends to more correlate with our better results.

• 43:35Shane Parrish?

  I like that. There's a couple of different directions I want to go there with. With consensus, I think it's really interesting. Groups search for consensus, especially if you have group decision making instead of individuals. Individuals search for truth. Groups tend to want to go towards consensus. That way, everybody can tell their own story within the group. If the decision's successful, you go back to your tribe in the organization and you can say that it was because of you, you influenced the group. And if the decision's unsuccessful, you can go back to your tribe and the story you can tell is that you tried to persuade them not to do it. Nobody's really accountable for those decisions, whereas if you have your name on it, you're searching for truth, you're searching for the best decision possible.

• 44:17Speaker 00

  Yeah, I think that's really interesting, actually. And I think that there's this thing that we call autopsies without blame. Not all decisions have good outcomes. So just because you got an adverse outcome, and you, when you're in your poker interview, for example, just because you get an adverse outcome, doesn't mean you made the wrong decision. The indecision often happens because you begin to create a culture. This is what we see in our comparison companies, where when you get adverse outcomes or things don't go as well as you'd like, or the decision turned out to be, well, boy, if we'd known X, Y, and Z, we would have done something different, then instead of an autopsy without blame, to understand. To gain understanding, to assume that people did their best and so forth.

• 45:01Speaker 00

  But let's really understand what actually happened so we can make better decisions in the future or refine our process. You search for somebody to blame. The moment that you introduce autopsies with blame as opposed to autopsies without blame, the more you are going to begin to create an environment where it's like, man, the upside downside here of making a decision is, you know, you've got upside downside for the company. It's an agency problem, right? If everybody becomes indecisive, that's bad for the company, but it might be very good for their careers.

• 45:32Shane Parrish?

  So how do we build this uncertainty muscle? Like, how do we develop our ability to live with ambiguity? What are, what are the patterns to that? Like, how do we go about doing that?

• 45:42Speaker 00

  So I remember a student came to me once and said, you know, I, I hear what you say in your class and you really are challenging us to go do something on our own and to create our own companies. And, you know, I understand that just because I want to be in business doesn't mean I have to work for Exxon or IBM or, you know, a hedge fund that's successful or whatever. Like, I could carve my own path and really, you know, do it my own way. But, you know, I, I just don't have the risk profile for doing, doing something entrepreneurial. And I said, um, well, what's one of the first things you learn in investing? One of the first things you learn is, you know, don't put all your eggs in one basket because that's high risk, right? Let me ask you a question. What's a job? It's all your eggs in one basket.

• 46:24Speaker 00

  You basically have made a highly undiversified portfolio bet. Oh, and by the way, you have very little control over it. You, you're exposed to, if it turns out that the people running the company are idiots or they make really bad decisions, you've made a bad bet that other people are making bad decisions that are affecting your bet. And so in an entrepreneurial world, there's risks, but maybe they're more clear, right? What your risks are, there's this market risk, a finance risk, a account. Inside organizations, there's this thing called political risks. Now, those of us who are not good at that, and I am one of these people who's not good at that, you can get blindsided because you just don't understand how the politics work. So now you got that risk in there. And as Irv Grossbeck, one of my other mentors, who I admire greatly, always used to say,

• 47:09Speaker 00

  yes, there are risks to entrepreneur-ing, but never forget, there are equal risks, maybe even higher risks to not entrepreneur-ing. So if you really want to be risk averse, why would you throw all your eggs in one basket that you don't even control and has all this political risk within it? Why would you take a job? See, if you take an entrepreneurial path, okay, a product A is not working, product B is not working, I can do C, I can do D, as long as I stay alive. I can keep doing hands at the table till something does get working, then I can get the flywheel going. I can build a portfolio of clients, right? I've got diversification. I've got different revenue streams. I can do all this kind of stuff, and I can do more to control it. That strikes me as lower risk. And by the way, what if you wake up at age 55 and the company that you threw your whole life in turns out to all of a sudden be going through one of these huge downsizings and at age 55, you're out?

• 47:54Speaker 00

  That strikes me as horrifyingly risky. And then it began to dawn on me. They're actually taking increased risk in order to reduce ambiguity. If you have a job, you kind of know what you're doing, right? It's much less ambiguous. It's much less, it's the paint by numbers a kit approach to life. And I follow the paint by numbers a kit as opposed to I go out on my own. It's a blank canvas. It's a lot more ambiguous. What do I, where do I start? What colors do I use? What kind of painting do I want to make? And what I realized is that people, my students anyways, would take increased risk in order to reduce ambiguity.

• 48:36Speaker 00

  So I think people are very ambiguity averse. And that's part of why they don't do an entrepreneurial path. And I used to come into my classroom and I would put up a little equation. And I would say, what are the probabilities of being successful as an entrepreneur? And let's suppose if it's kind of a multiplicative probability thing. And one probability is, the end result is probability of success as an entrepreneur. And, but then you can break that into two parts that lead to that probability. The first part of that is probability that you will find a way to be successful if you start, times probability that you will actually start. And then I would turn to my students and I would say,

• 49:21Speaker 00

  tell me about the risks on these. Well, most of those students would look at it and say, if I really threw my whole life into it, probabilities that I will be successful if I start and I do it in a really smart way are actually not that low. I could find a way, especially if I can be persistent long enough to iterate to find a result that will work. Probabilities that you will start. Well, as you go, like two years go by, five years go by, then you have houses and commitments and all these things. And at some point, as more and more of the sort of accoutrements of life build up, the probabilities that you will start go down.

• 50:02Shane Parrish?

  Because now you have loss aversion.

• 50:03Speaker 00

  A huge loss aversion. And when you're young, you have nothing to lose. But the further along you get, that probability goes down. It's a rare person who decides at 55 to say, I'm launching the entrepreneurial path. Some do. We talked about George Rathman last time. There are some that do. So what that really means is the real swing variable in being an entrepreneur is the probability that you will start, not the probability that you will succeed if you start.

• 50:31Shane Parrish?

  I want to come back to something you said about ambiguity aversion. That makes me think of one of the reasons that we have all these procedures in organizations is because we want to avoid ambiguity. If we follow the procedure, we're always right. We don't have to exercise a ton of judgment, even if the outcome is wrong. We did what we were supposed to do. We can't get in trouble. What do you think of that?

• 50:55Speaker 00

  So, so on the one hand, in order to really build and make a flywheel go really far, you need to have some replicable recipes that you're going to be staying with more or less for quite some time. If you take, for example, Southwest Airlines, which amazingly became the best performing stock over a 30-year period from 1972 to 2002, startup company, three airplanes, and they originally copied their recipe from Pacific Southwest Airlines. It's actually an amazing startup story because you're back in the late 1960s, early 1970s, and their original business plan was copy PSA in Texas.

• 51:33Speaker 00

  The ESA was Pacific Southwest Airlines. They were based in California. People who from that era may remember the company that had the planes that were the sort of point-to-point commuter planes that had little smiley faces on the bottom, you know, on the front part of the fuselage and made it look like a smiley face in the sky. That was PSA. And Southwest Airlines basically flew out there and copied their model and took it back to Texas. This was pre-deregulation, so PSA gladly shared with them how they do things, so much so that in fact, if you ever wondered why Southwest Airlines is called Southwest Airlines, based in Texas, well, you know, if you basically have the entire recipe and all you do is cross out the word Pacific, you get Southwest Airlines.

• 52:16Speaker 00

  I mean, it's like a photocopy of the original idea. But here was the difference. PSA, after a certain point, the recipe kind of became roped. Nobody could explain to you, well, why do we do fun things in the cabin? Why do we, you know, keep a certain kind of aircraft? Why do we try to turn the planes fairly quickly, right? At some point, the sort of real understanding of why this recipe, why do we put raisins in the oatmeal cookies? It gets turned into mindless procedure. At Southwest Airlines, Herb Kelleher and Roland King and those folks, they really emphasize and train their people, this is why we do the recipe. Why do we fly only 737s?

• 53:01Speaker 00

  Let's go through like 10 reasons why we only fly 737s. One set of parts. Every pilot can fly every aircraft in our system. One set of training manuals. One set of flight simulators. One set, right, they're the entire standardized system and then they're perfect for point-to-point and they're a really reliable aircraft and da, da, da, da. That's why we're going to bet on the 737 and we're going to replicate that. Why do we not do first-class seats? Why do we, everything you could go through and they could say, there are reasons why we have this recipe. This is why we have the oatmeal, why we have raisins in this oatmeal. Why do we turn the planes? Really fast, not because like 10 minute turns cool or 20 minute turns cool. It's because our economic engine is based upon having the planes in the air. And the longer they're at the gates, the more they're not earning money.

• 53:45Speaker 00

  The more they're in the air, the more they're earning money. Turn the planes, turn the planes, turn the planes. And what's the recipe for a plane coming in, getting it turned, get it back out again, right? We bake the cookies and we know how to bake the cookies. And then when we expand out across the country, there's this, you know, they're baking the cookies. Now we're baking the cookies in Kansas, we're baking the cookies to Las Vegas, we're baking the cookies out to Kansas City, and we're baking the cookies out to, right? And, and they've got this recipe. And we did this interesting analysis, Morton and I, where we asked ourselves a simple question. In turbulent environments, it's not that the really successful companies had a, had a recipe and the other company didn't. The folks at Southwest understood the reasons and rationale behind the recipe.

• 54:30Speaker 00

  So that if there ever came a time when that rationale was no longer supported, you could change a piece of the recipe based upon that rationale. If, for example, you say, look, we only do short haul. Well, why do we only short haul? Because 737s have a two hour range and there's a lot of reasons why we do 737s. Well, what if something changes where 737s now have a three hour range or a four hour range? Oh, well, then that rationale doesn't apply. We could do a four hour range. The understanding of the recipe. Now, we did an interesting analysis where we basically said, okay, if every successful company has a recipe of some things they do over and over again, things they replicate, 20 minute turns, whatever it is, how much do those recipes change over time?

• 55:14Speaker 00

  One set of companies changes the recipe about 80% over, say, 30 years. And the other changes the recipe about 20%. Which group is the more successful companies? The 20% change, which surprised us. We thought that what you would find is that the companies that are the most successful are going to change the most in a changing world. That's not what we found. They don't have it as change or not change. Change, world's changing, we have to change. We have to change fast, we have to pivot and we have to... Right, no. Very deliberate thing. We understand a recipe and then the question always is, what's in the right 20% to change? And why?

• 55:56Speaker 00

  Where people get in trouble is when you have, everybody knows the recipe, but they can't explain to you the rationale behind the recipe. And then that begins to correlate with their decline. And then when they get in trouble, because they don't understand the rationale, they panic. But there's one other piece. One of my favorite things that came from Built to Last was in Chapter 6. And it was about the development of Nordstrom over its greatest years. We put a replica of Nordstrom's employee manual in Chapter 6 of Built to Last. Jerry Porras and I, we did this. And basically what it said was, "Welcome to Nordstrom. You're part of a customer service machine and so forth."

• 56:39Speaker 00

  But then it said, "Nordstrom rules. Rule number one: Use your best judgment in all situations. There will be no additional rules." So how do we put these two together? What we really found makes a great flywheel, a great company go, is you've got an incredible, replicable, scalable recipe. It's an overall corporate approach to the world and you really know how that works. And you really understand why it works. And people can explain why it works. And you multiply your success by baking the cookies with 20% evolution, like amending a constitution over time. But on the other hand, you have people who you trust, who you can say, in the context

• 57:24Speaker 00

  of our system, which we all understand how it works, because you're the kind of person we'd like to understand it, you can say to them, to the person on the aircraft, "If you have an unwilling passenger, use your best judgment in all situations. We trust you." And so when you put the right people, who you trust, who were selected for their values and their judgment, next to a highly replicable, disciplined recipe, and you put the two of those together, now you have the genius of "and" that better explains a Southwest Airlines...

• 57:59Speaker 00

  Relative to a PSA over time, a big part of the answer, not the only answer, but a big part.

• 58:06Shane Parrish?

  How do you distinguish the people who are copying and don't understand why the recipe works from the people who copy? How do you determine the difference between the two as a casual observer? What are the ways, the signals, the who really understands it? Because in good times, they're probably both getting really good results. But in bad times, you're going to get massively different outcomes as we saw with your examples here.

• 58:35Speaker 00

  One of the things that Giorgio Paulo Lehmann, who's a dear friend of mine,

• 58:41Speaker 00

  said to me once, he said, you know, I think of myself as a teacher ultimately. When I think about the great folks who really are the real McCoy is they so deeply understand what it is that they're doing, that they are great teachers of it. And let's take Jack Bogle. As you know, from the flywheel monograph, I've been close to Vanguard for some time and helped them get their flywheel right, or they got their flywheel right by me just asking them to get it right, I guess is really what happened. And I've always admired Jack Bogle as a result. So I was at this thing in New York. We were, we were both being inducted into something and I noticed Bogle was there. I was like, wow, Jack Bogle's there. So I go up to him and he was kind of on his cane and he had a heart transplant many years ago. And I said, hey, I don't mean to intrude on your space.

• 59:25Speaker 00

  I just want you to know how much I admire you and what you've built at Vanguard. And he looks up and he has this warm smile and he says, Jim, yes. You know, I've read your books and we should talk sometime. Do you ever get to Philadelphia? We should talk. So now at this point, he's like 87 or 88, right? And so I get home and I tell Joanne about, God, I met Jack Bogle and he invited me out to come out to Malvern and, and have a conversation. And then I started thinking and I started hesitating because I kept thinking, how many Jack Bogle days are left? I don't want to steal one. So I hummed and hawed and hesitated. And finally, Joanne said to me, she said, you know, make it easy for him to say no, but reach back out to him. He asked you to.

• 1:00:10Speaker 00

  So I sent him this email. I said, Dear Mr. Bogle, you know, we, you know, we met in New York, et cetera. And then I just sort of went through this long description of giving him all these, I know you're busy, you're probably working on your next book and wouldn't really fit in, but I just wanted to say it was nice to meet you, et cetera, et cetera. And, you know, sent the email off, giving him every opportunity to say. He's too busy, right? It wasn't gonna work. I get this email back. Dear Jim, first, it's Jack, not Mr. Vogel. I'm so glad you followed up. I so much wanted to have a conversation with you and I wanted to to follow up with you, but I didn't want to seem pushy. Please come to Melbourne. So I meet Vogel, he's 88. And and we sit there, I mean, a real meeting, a real conversation.

• 1:00:52Speaker 00

  And he got a picture, like, he had done his Princeton thesis on, I think, mutual funds essentially in the early days of that, decades and decades earlier, right? What was it, six decades earlier? And he's still incredibly engaged and passionate and energized about this. When you look into Jack Vogel's eyes, they are burning with an 18-year-old's intensity. Just coming right out of his eyes and into the room. We just have this, it's like, you would have no thought, I'm talking to somebody who's 88, who had a heart transplant. Now, notice what Vogel did. Vogel had, there are incredible recipes that make Vanguard go, the mutual structure, right? The the cost on mutual funds, the highly diversified,

• 1:01:35Speaker 00

  the low tax efficient, you know, high tax efficiency because you don't trade that much, the way indexing is done, all these things, right? That are part of serving their clients and and the flywheel. It's a different model. I'm not saying it's a, you know, there are multiple types of investing models that can work, but that's theirs, right? And it's it's a recipe. When you sit down and you follow Vogel, what did he do? He became a great teacher of it. His books are lessons. His conversations, they're not sales. They're teachings. And when you find someone who is able to teach versus giving you rote lessons, I think that's how you, one indicator of the real difference.

• 1:02:20Shane Parrish?

  I love that. I think that's such a great answer because it shows the depth and the nuance and the sophistication and the simplicity that sort of comes out on the other side of it, but it dives into why. I want to come back to something you said, which is you've learned a lot about the flywheel since we talked last. What have you learned?

• 1:02:40Speaker 00

  One thing I've learned is that there's tremendous power in thinking very hard about what is the 12 o'clock point on the flywheel because it has tremendous signaling. So is your opening point about, you know, creating something like creating the next great bicycle helmets or the next great generation of chips or biotech drugs or whatever, or is it about, does it start with getting a certain kind of medical professional like a Cleveland Clinic? Does it start with lowering costs as Vanguard's was like, where's the flywheel start? Even though it's a repeating loop, is there something very powerful about asking that? So that's one thing I've learned. But the second thing I've learned, there's sort of a right side and a left side of the flywheel. So when you look at a flywheel, it's going around the clock.

• 1:03:26Speaker 00

  I like to think of it as that there's sort of a 12 o'clock to a 6 o'clock part of the flywheel. And then there's a 6 o'clock to the 12 o'clock part of the flywheel. And if you really study the best flywheels, they have a different role. On the right-hand side of the flywheel, the 12 o'clock to six is really about what you do in the world, what you do to contribute, what you do that makes people's lives better, what you do that is kind of your net add, right? In some way, delivering great health outcomes, whether it be, you know, the next powerful generation of chips that multiply Moore's Law over time,

• 1:04:07Speaker 00

  whether it's a biotech drug that's going to be able to solve anemia, you're doing something in the world. And then as you come up the other side of the flywheel, what you find... Is that it's about generating fuel. It's how you convert the 12 to 6, the 6 to 12, takes that and converts it into fuel. So let's go back to that Vanguard one we were talking about earlier. You get to the, you know, you're generating returns, you grow assets under management. But then that allows you to get economies of scale, assets under management, economies of scale become fuel to pop down the other side of the flywheel again. If you get the right medical professionals that then deliver really great health outcomes for your patients, and then you begin to attract folks from around the world, and then

• 1:04:52Speaker 00

  that generates, you know, services that you get cash flow, which then you can invest as fuel back into the flywheel again. And so if you really get your flywheel right, it's like a two piston machine. Piston one is what are you doing that's useful? What are you doing that makes a difference? What are you doing that's contributing to your customers? What are you doing that's, you know, making the health outcomes better? It's like, it's your ad in the world. And the other is fuel capture, fuel generation, fuel capture to go back into the top of the flywheel and then spin it around again. And one of the things that I think is deeply existential is when you do the fuel part, what's that about? So first of all, there's just the logic of fuel then just then accelerates the flywheel around again, right?

• 1:05:37Speaker 00

  So how do you get the fuel out? But you have to think of it as fuel. And one of the great battles that we continue to have is the basic battle between are you ultimately built to last or built to flip? If you see that the point of the flywheel is to generate resources that get siphoned out of the flywheel, they're really, the purpose is to have that flywheel generate cash to other people to allow you to cash out, to sell the company to somebody else. That's siphoning fuel. And if that's really the point, then you ultimately are on the built to flip side. If the point is the built to last side,

• 1:06:20Speaker 00

  then all that is about taking as much of that fuel as possible to fuel the next clicks on the flywheel, next clicks on the flywheel. And the fundamental existential question, people talk about purpose. We discovered purpose many years ago in our research. But this is sort of the operational version of that. Where's the fuel going? Is the truth that you want to generate a flywheel that generates fuel that you siphon off? Or use as a flip? Or are you generating fuel to ultimately make the flywheel bigger, more powerful, greater momentum, doing better things in the world and lasts a really long time?

• 1:06:56Shane Parrish?

  You said you're at the midpoint in your career and you've spent some time consolidating it onto a map. And I think we've covered, you know, a large part of that map on, last time we were on the podcast. But last, one thing we didn't hit on was the Stockdale paradox. And I think that's critically important to think about right now. What is it and why is it important?

• 1:07:19Speaker 00

  Admiral Jim Stockdale. He was the highest ranking naval officer in the Hanoi Hilton, prisoner of war camp in North Vietnam. He was shot down in the late 1960s and he spent seven years in the camp. And he had leadership responsibility as that officer in the camp. I had the tremendous privilege to get to know Admiral Stockdale a bit when he was studying Stoic philosophy across the street at the Hoover Institute and I was teaching my entrepreneurship and small business class across the street at the Stanford Business School. Through a student who'd actually written a paper on Stockdale kind of led to me having this chance

• 1:08:01Speaker 00

  to have this really life-changing conversation with Admiral Stockdale. We were going to go for a walk on the Stanford campus and have lunch together and talk about whatever. In preparation for that, I read his book, In Love and War, which is alternating chapters, written by himself and his wife, about his years in the camp.

• 1:08:22Speaker 00

  And I found myself, as I began to read the book, felt like this sort of cold, penetrating mist was coming in. And I began to feel this encroaching sense of just despair. And because what, it wasn't just the horror of what he lived through, right? I mean, he could take you out and torture you at any time, and they would do that. Put you in leg irons, they would do that, right? But what struck me as so unbelievably oppressive was the idea that when you're going through it, you have no idea how long this is going to be, or even if it will ever end. It's like we can all endure something if we know the end point. It's only a 26-mile marathon, right?

• 1:09:06Speaker 00

  But imagine you're at mile 20 of a marathon and you're really suffering, but you have no idea if it's a 100-mile race, a 300-mile race, or a 25-mile race, right? You have no idea. That's what struck me, as you say, the sheer overwhelming ambiguity of the suffering, of how, of the extent of the suffering, how long it would be. And then it dawned on me, this, this sort of flash of realization hit me. Oh my goodness, I'm feeling this, and I'm only reading about it. And I know the end of the story. How did he not completely capitulate to despair, living it, and not knowing whether or when it would ever end? And when I asked him that, he said, "Oh, I never capitulated to despair

• 1:09:50Speaker 00

  because I never wavered in my faith, that not only that I would get out, but I would turn that into the defining event of my life, that in retrospect, I would not trade." I remember exactly where we were standing when he said that. And we walked all the way over the next, you know, while towards, across campus. We didn't talk at all. I mean, it was interesting. Somebody like Admiral Stockdale feels no need to fill the air with conversation.

• 1:10:21Speaker 00

  And finally, as we're getting close to where we're going to have lunch, I said, Admiral Stockdale, I'm curious, who didn't do as well as you? Who didn't make it out as strong as you? And he said, oh, it's easy. It was the optimists. I said, I'm confused. I mean, you sounded optimistic back there. He said, no, I was not optimistic. Let me explain to you what I mean by optimistic. What I mean, the optimists are the ones who said, we're going to be out by Christmas. And Christmas would come and it would go. And then we're going to be out by Thanksgiving and it would come and it would go. And another Christmas would come and it would go. And they suffered from a broken heart. When I learned this lesson from Admiral Stockdale, if this duality must never confuse

• 1:11:01Speaker 00

  the need on the one hand for absolute unwavering faith that you can and you will prevail in the end, with the need on the other hand, for the discipline to confront the most brutal facts, as they actually are, right now, we're not out of here by Christmas. We came to call that the Stockdale paradox. And the way it popped out, as I was doing the research for Good to Great. And one day I just shared that story with the research team. And I said, I just keep thinking about this conversation I had with Admiral Stockdale. And then essentially what happened is that triggered right there in the disciplined thought.

• 1:11:44Speaker 00

  So you discipline people, but then in the disciplined thought part of the framework, all of our leaders who led their companies through these often very desperate times, they actually had both sides of that Stockdale paradox. They had this unwavering faith that they would find a way to get to the other side and the discipline to confront the brutal facts as they actually are. We're in a Stockdale time. I think we're always in a Stockdale time somewhere in our lives, but this is like a global Stockdale time. And yet, the idea is so timeless that even if somebody's listening to this post-COVID,

• 1:12:21Speaker 00

  this is an idea to take away for life.

• 1:12:25Shane Parrish?

  I think that's a great place to end this conversation, Jim. I really appreciate you taking the time and explaining it. And I think it's a perfect, perfect point to leave on. Until next time.

• 1:12:35Speaker 00

  Thank you again. Really, really joyful to spend time with you.

• 1:12:43Shane Parrish?

  Hey, one more thing before we say goodbye. The Knowledge Project is produced by the team at Fernham Street. I want to make this the best podcast you listen to, and I'd love to get your feedback. If you have comments, ideas for future shows or topics, or just feedback in general, you can email me at [email protected] or follow me on Twitter at Shane A. Parrish. You can learn more about the show and find past episodes at fs.blog/podcast. If you want a transcript of this episode, go to fs.blog/tribe and join our learning community. If you found this episode valuable, share it online with the hashtag The Knowledge Project or leave a review. Until the next episode.